As I sat on the beach watching the ocean waves crest and crash on a recent trip to the Pacific Ocean, I pondered how fluid and unpredictable life can be. I thought about how many changes I’ve experienced in recent years. I also considered the state of my finances and how saving and planning for the future has allowed me the cushion to absorb any financial problems.
To enjoy life, we must be able to withstand the times when the waves start to crash around us. And it’s the reason that we must build a margin for error and unpredictability into our financial plans.
On this particular day, there was no lifeguard at the beach, so many people struggled against the pounding waves in an effort to enjoy each moment of the sun and surf. Several people dived into the waves, not knowing how high or turbulent the next wave would be. Many came up gasping for air, but didn’t seem to care that it was getting too cold and the waves were getting rougher.
They kept taking more and more chances as they raced against the setting sun.
Sometimes we take these kinds of chances with our finances. We want to enjoy the moment by paying with credit cards if we don’t have cash, and worry about how to pay for it later. But later comes and sometimes with it comes a wave of unexpected debt.
It’s happened to all of us. You take some friends out to lunch a couple of times this month and think you can pay the credit card off next month. But the next month, a cold current in the form of a car repair stops those plans.
Or, you want to buy a new mobile device with the latest features. So you buy it with a credit card, thinking you will be able to pay it off in a couple of months. Then you decide to treat yourself to a new outfit, some new running shoes, and dine out at restaurants several times during the month.
By the time the credit card statement arrives, the amount of debt has doubled. It will now take more than a year to pay off the debt, much longer than the few months you had originally estimated.
It’s critical to build a cushion – a margin of error for emergencies and other expenses. For me, margin means having the financial leeway in your budget to cover risk.
It can take several forms: it is your emergency savings; it is the extra money each month in your budget that is not designated for a particular bill or purpose; it’s the $20 bill you keep in your wallet for emergencies so that you don’t have to use your debit card. It’s that cushion that is available in times of distress and when you want to do something special for yourself. It helps you avoid living paycheck to paycheck.
It creates the opportunity, when an item is on sale, to pay for it without worry. Margin allows you the opportunity to just have fun once in a while.
When I returned to the ocean the next day, there were several lifeguards on duty. As I got ready to hit the ocean, I had to decide if I would trust my rusty swimming skills to a lifeguard over 600 feet away, or build some margin for error by swimming in the shallow water. I knew the current would be strong and unpredictable.
I had to decide: Could I still have fun and create a new, lasting memory without swimming miles from the beach? Building a margin for error will be the choice every time.